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The Riteway Ad Agency provides cars for its sales staff. Its present fleet of cars is three years old and will be sold very shortly.

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The Riteway Ad Agency provides cars for its sales staff. Its present fleet of cars is three years old and will be sold very shortly. To
provide a replacement fleet, the company is considering two alternatives:
At the end of three years, the fleet could be sold for one-half of the original purchase price.
Lease alternative: The company can lease the cars under a three-year lease
contract costing $55,000 per year (the first payment due at the
end of Year 1). As part of this lease agreement, the owner
would provide all servicing and repairs, license the cars, and
pay the taxes. Riteway would make a $10,000 security deposit at
the beginning of the lease period, which would be refunded at
the end of the lease contract.
Riteway Ad Agency's required rate of return is 18%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the purchase alternative's net present value.
What is the lease alternative's net present value.
Which alternative should the company accept?
Complete this question by entering your answers in the tabs below.
What is the purchase alternative's net present value.
Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.
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